The television advertising market was stunned Friday by the State Duma’s decision to pass in three readings a recently submitted bill that would force industry powerhouse Video International to reduce its market share to 35 percent.
The amendments prohibit federal TV channels from signing agreements with ad houses whose market share exceeds 35 percent. Channels will have to choose a contractor based on the results of auctions or competitive tenders, while current agreements between advertisers and sales houses will remain in force for one year.
Earlier this month, Video International’s nearest competitor on the TV market, Gazprom-Media, accused its rival of limiting competition and coordinating its actions with television channels.
The Federal Anti-Monopoly Service said at the time that it was already conducting an investigation into Video International and that it was waiting for evidence from Gazprom-Media. In 2007, the watchdog concluded a two-year probe into Video International’s possible monopolistic behavior but took no action after deciding not to treat advertising platforms as individual markets.
The bill’s passage also comes a month after Video International founder Mikhail Lesin was sacked from his post as President Dmitry Medvedev’s media adviser, and several publications reported that he was reprimanded for conflicts of interest. The company says Lesin has not had any links to it since 1994.
The changes to the law on advertising were submitted Monday by United Russia deputies Irina Yarovaya and Sergei Neverov and their quick passage took both advertising sellers and TV channels by surprise.
Video International, which sells advertising on state-controlled Channel One, the state VGTRK holding, CTC Media and Prof-Media, covering a total of 12 channels, said it was worried by the quick pass of the amendments.
“It’s a very unpleasant situation for us,” spokesman Anton Charkin told The Moscow Times, declining additional comment.
Vedomosti reported Dec. 1 that Video International had 67 percent of the market in October, based on gross rating points, while Gazprom-Media had 23.6 percent, citing data from Media Logics.
“Such amendments are, of course, a very big surprise for the market. We’re monitoring the situation and are studying the amendments now,” said Yekaterina Osadchaya, a spokeswoman for CTC Media, which owns Russia’s fourth-biggest television network.
Shares of CTC Media slumped 15 percent in New York on Friday.
Analysts said Gazprom-Media filed its complaint after losing contracts with two major channels owned by National Media Group — Ren-TV and St. Petersburg’s Channel 5. Video International will sell advertising on these channels starting from the next year.
Gazprom-Media and its partner Alkasar also sell advertising on NTV, TNT and TV-Center.
The amendments propose calculating the market share of advertising sellers as a ratio between the volumes of funds received by the sellers from advertisers and the funds that federal channels have received for placing commercials.
The calculations are based on the amount of money that advertisers spent in the last two years before the tenders.
Additionally, the Federal Anti-Monopoly Service would be allowed to file a lawsuit against the sellers it believes are violating the new rules, the amendments say. If an arbitration court agreed with the watchdog, any contracts signed would have to be terminated.
The share of Channel One at the TV advertising market exceeded 18 percent in 2008, while the share of Rossia, which is part of VGTRK holding, amounted 14.5 percent, Kommersant reported.
That means that after the amendments come into force, Video International would not be able to sell on other national channels if it kept its contracts at the state’s two big TV media outlets.
To become law, the changes would need to be approved by the Federation Council and signed by President Dmitry Medvedev.
Analysts saw Lesin’s firing and now the amendments as a first step toward reaching a more transparent market.
“The TV advertising market was widely controlled by individuals who had strong connections with certain people in the government. The amendments followed Lesin’s ejection. As far as I can see, this is a step toward some measures of transparency,” said Eric Kraus, chief strategist with Otkritie.
An industry source said the changes would soon affect all the market players and that the Kremlin wanted to press Video International for political reasons.
“There’s a political background above all here. But it’s hard to say exactly whether the situation is good or bad,” said a market source, who did not want to be identified because of the sensitivity of the topic.
“The time chosen for passing the amendments is inappropriate because it’s the end of the year, when advertising contracts are being signed. That means that all advertising sellers will turn out to be in equally uncomfortable conditions in the nearest time,” the source said.
The source added that the changes were not necessarily negative for channels, however.
“Probably in future everyone will be used to this situation, and Russian TV networks will benefit from it,” the source said.
The volume of television ads contracted by 21 percent over the first nine months of this year after amounting to 94.5 billion rubles ($3.1 billion) in the same period last year, according to AKAR, an industry association. In comparison, the overall ad market shrank by 30 percent from January to September, it said.
A Message from The Moscow Times:
Dear readers,
We are facing unprecedented challenges. Russia's Prosecutor General's Office has designated The Moscow Times as an "undesirable" organization, criminalizing our work and putting our staff at risk of prosecution. This follows our earlier unjust labeling as a "foreign agent."
These actions are direct attempts to silence independent journalism in Russia. The authorities claim our work "discredits the decisions of the Russian leadership." We see things differently: we strive to provide accurate, unbiased reporting on Russia.
We, the journalists of The Moscow Times, refuse to be silenced. But to continue our work, we need your help.
Your support, no matter how small, makes a world of difference. If you can, please support us monthly starting from just $2. It's quick to set up, and every contribution makes a significant impact.
By supporting The Moscow Times, you're defending open, independent journalism in the face of repression. Thank you for standing with us.
Remind me later.